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A Better Way…

Kirk SpanoAccording to Warren Buffett, the top 2 investing rules are…

Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.  

The most important aspect of financial planning is having an investment approach that protects you from large permanent losses and still gives you an opportunity to make money over the long-term.  I founded Bluemound Asset Management after seeing that most of the sales driven financial industry comes up lacking.

My name is Kirk Spano. I am visible and easy to follow in the media. Please take some time to read about the advice I have given. Then, if you are ready to find a better way to secure your lifestyle and create a legacy, contact me so that we can talk about what is important to you.

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Avoiding the Next Crash & Investing in the Next Boom

In January 2012 I told people on MarketWatch not to miss the upside coming in American stocks, especially energy stocks, most of which doubled and tripled within two-and-a-half years. By June of 2014, again on MarketWatch, I told people to sell their oil and gas stocks, most of which were cut in half by December 2014.

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Today, I am telling people that the next few years are lining up for some very negative events in parts of the world that will effect your portfolio. In my special report “The Two Most Important Trades You’ll Ever Make — Avoiding the Next Crash & Investing in the Next Boom” I discuss how to protect yourself and how to preserve your lifestyle. 

Request your free report today.

Chinese Fortune Cookie

March 2010

Chinese Fortune Cookie

While I was going to write about all the reasons that people in the first half of their work life ought to be pounding down debt so that they can make life changing investments over the next several years in equities, commodities and real estate, the U.S. and China relationship came to the fore as 130 Congress people decided that China was a currency manipulator.  While there is a lot of politics being played, what most needs to be understood is that China will do what is good for China regardless of what the United States asks for in terms of currency revaluation or trade policy.

So, the question is begged, what is good for China?  Ahhhh, that is a good question.  Let’s look at it mainly from the standpoint of the Chinese.

 

What is Good for China?

China is a huge creditor nation, constantly running large quarterly surpluses with other nations.  Also, their people save over a third of what they earn, in fact, approaching half.  When a family has enough to buy a home, they do not get the equivalent of an FHA 5% down payment loan, they put down half– and this in what many are calling a real estate bubble.  If they want a second home, they generally pay cash, or close to it.  It certainly is a different world in China.

On the way to saving money, the Chinese work.  As it stands right now, about half of the population is still very poor, another quarter is poor and many are looking for work.  With numbers like that, civil unrest is tough to thwart.  High growth rates and hope for the future might be all that keeps China from having major internal problems to put down (which they have shown they will do).  It should be blatantly apparent that the Chinese are not going to do anything that would slow their growth rates and ability to employ more people.  The U.S. representatives however are asking that the Chinese do just that.  It’s not going to happen. 

China’s most pressing issue in maintaining production is not what many in the United States think, which they believe is having the United States to export to.  The biggest issue the Chinese face is having low cost natural resources.  There has been an argument made by the U.S. that the Chinese should raise the value of their currency versus the dollar in order to get those natural resources cheaper.  In general, stronger currencies pay less for goods than weaker ones.  The Chinese appear to realize there might be another way.

Importantly, the Chinese home market might be near the point where internal consumption, via a gradual spending of its international reserves could suit the Chinese just fine, rather than transferring the assets back via what they perceive as unfavorable currency policy.  Think of things from the Chinese point of view, they feel as if they earned it, they can spend it how they want.  That is certainly not much different than our mentality the past thirty years.

What Will China Do?

In his article “The Time for Lying Low Has Ended” in the Financial Times, Ian Bremmer discusses that China is beginning to embark on policies that decouple China from the United States.  Why are they doing this?  As mentioned above, in the simplest terms, because they believe they need to and they can.  This does not mean that the United States and China will stop doing business, that will continue for many decades, however, it does likely mean that instead of exporting higher standards of living to us, they will keep that standard of living at home.  That is understandable.

Over the past decade, China has been one of the main countries to support the United States by refinancing its debts.  That day might be coming to an end as it could be in China’s best interest to force our interest rates to go up through purchasing fewer of our treasuries.  If the Chinese do this, and recent indications in bond market auctions are they have begun the process, American markets will likely continue to face some deflationary pressure as interest rates rise. 

American politicians have asked for a stronger Chinese currency, interestingly, we will get one if the Chinese force our interest rates up since they are pegged to our currency.  There are several moving parts here, but the easiest thing to understand is that would mean both the dollar and Yuan Renminbi would appreciate against other world currencies.  For the Chinese that could be the best of all worlds, lower commodity prices, their largest export market would remain very open and a competitor on exports would gain no advantage. 

Now, I do think the Chinese will throw the U.S. a bone in the form of a small adjustment to the currency parity, but it will only be enough to smooth over some flak they have been receiving from companies that export to China (which in the end lose usually anyway as the Chinese just copy whatever they were importing) and some financiers they sleep with from time to time. 

Interestingly, one author discusses a potential Chinese currency devaluation.  While I do not think that is likely, the argument applies to the Chinese holding their currency near the levels it is currently at.

What is Good for Americans?

At the crux of the 130 U.S. Congressmen’s complaint about Chinese currency manipulation is that China’s currency is incorrectly pegged to the U.S. dollar at a depressed price.  That is bad for a small handful of U.S. exporters, but not many, and some financiers who have placed currency bets.  It is probably good for U.S. citizens in general that the Renminbi does not drastically appreciate as it keeps our currency stronger in relative terms which means our imported oil and other imported goods are cheaper.  It is a moot argument, but it is also doubtful that the Chinese currency would float much higher even if it were allowed to. 

The Chinese do not let their currency float because they do not want their currency manipulated by investors.  Rightly or wrongly, they presume that would happen.  So think about it, if your currency was going to be manipulated, wouldn’t you rather be the one doing it? 

While many want to blame the Chinese for American problems, rational informed people know that is not the case.  Had we not outsourced so much of our manufacturing and had embraced on a different set of social and corporate standards the past few decades, we would not be in the pickle we are in of not having enough good paying jobs.  Our problems are our own.  Using China at this point as a whipping boy, and embarking on a crusade against the Chinese is a dangerous game as John Mauldin discusses in his recent letter.  Better to find our solutions at home at this point as there is no going back in time. 

It is my opinion that jobs in the United States will only come as we rebuild our infrastructure and that the money from those projects and jobs flows again through the economy.  Getting money changing hands is very important in the equation of whether we can sustain a recovery.  Mauldin also discusses the issue of money velocity in a recent article.  Once again, I will bang the drum for more renewable and nuclear energy development as the core to an improved long-term economy.  The Chinese are doing it.  Given recent developments in solar power and having seen a couple clients move to get their red badges at nuclear sites under construction, I suspect we will follow the path of energy system modernization, hopefully not too slowly.

So, while the Chinese are doing what is good for them, it is about time we did what is good for us, and that we not mistake what that is.

Your still looking for normalization, being guarded short term and cautiously optimisic long term, index ignoring advisor.

Cordially,

Kirk Spano

 

This newsletter contains forward looking statements that may not come true.  Past performance does not guarantee future results.  This letter is intended for informational purposes only, and reflects only my thoughts and opinions in general, and do not constitute individual advice.  Opinions expressed may change without prior notice.

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Investment Programs

All of our investment programs provide a level of service and expertise rarely found within the retail financial industry. Our programs also are at the low-end of the fee scale relative to the financial industry. All of our investment management and consulting services have access to our founder and nationally recognized advisor Kirk Spano.

 Punch Card Stocks

Based on Warren Buffett’s idea that if there was a limit to how many companies we invest in, that our investments would be less risky and perform better. Learn more…

Retirement Income Options

A flexible income strategy designed to handle any interest rate environment and provide enough growth for a long life.  Learn more…

Resource Opportunity

Scarcity for resources and looming inflation require that any portfolio have exposure to hard assets and companies that provide resources for our lives. Read more…

Investment Coaching

A flat-fee program for self-directed investors who would like a well regarded professional to consult with and learn from. Very limited space.  Learn more…

Tactical ETF Allocator

A unique diversified low cost exchange traded fund (ETF) strategy for dealing with an uncertain global economy. Learn more…

Mutual Fund Allocator

A low cost flat-fee program for traditional investors who want a better way to manage a mutual fund portfolio without new commissions.  Learn more…

401(k) Monitor

Fund selection, contribution strategy and ongoing asset allocation recommendations for your at-work retirement plan.  Retire Sooner…

Annuity Rescue

A chance to reduce annuity expenses, increase net returns and avoid the nasty surprise awaiting most annuity owners.  Learn to get more

Kirk’s Recent Quarterly Letters

Dealing With Today’s Volatility

“I don’t really care about volatility.” Warren Buffett

Asset Returns vs InvestorsI put off publishing this letter for about two weeks, as over the past month, stock market volatility has increased quite a bit. While we are not seeing the wild swings of 2011, we are seeing a significant reaction to the overdue realization that the enduring slow global growth I have talked about multiple times and the end of quantitative easing by the Federal Reserve are both real. 

Buffett’s quote above is meant to convey a message that emotions should not be a part of our investing process. He goes onto discuss how volatility gives us opportunities to buy great companies at good prices.

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Freedom to Unite and Invest in Tomorrow

UpWhen I was a kid I dreamed about being an astronaut, a baseball player, a rock star and the President. As I hit my teen years and I hadn’t done much musically, I dropped the Mick Jagger aspirations and focused on baseball. By senior year of high school I knew that baseball was fun, but that I wasn’t an elite player so I had to drop the Robin Yount dream too. 

When I got to college, I focused on having a good time and taking courses that might help me when I grew up. For awhile I thought I’d be a lawyer, but a great uncle gave me some guidance…

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The Great Retrenching Continues…

Total DebtIn September of 2008 I had coffee with a group of executives from local manufacturers, it was just after the financial crash had started. One company president in the group — a particularly political sort — asked me how long the economic slowdown would last? I said “until the middle of the next decade sometime.” He laughed at me.

Fast forward to today. What we know now is that the economy still has not recovered in real terms and that it will be a few more years until it does. The United States is just about in the middle of a demographic depression that can not be fixed with legislation or easy money. We must wait until household formation and spending by the very large millennial/ echo boom generation ramps up. Last year was the first year since 2008 that we saw an uptick in the birth rate, so that is a positive, however, it is only a baby step.

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2014 Another Crossroads 

S&P 5002013 proved to be a profitable year for investors. The S&P 500 rose 29% and set new record highs. Global balanced indexes, more representative of most people’s portfolios, also did very well by returning about 20% despite a tough year in China which lost 9%.

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Volatility, Opportunity and the Next Crisis

Secular Bulls and BearsOver the past several years, I have discussed the monumental demographic changes that not only America is dealing with, but also that Europe, China and Japan are dealing with. The cumulative impact of national and personal debts, de-leveraging from the bubbles of the 2000s and the four largest economies in the world having aging populations has created global demand destruction that is not likely to end soon.  

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